Premier African (LON: PREM) shares are up 20% in London this morning. The PREM share price rise comes from the passing of the pre-emption rights vote at the general meeting. Seems logical enough to us that it should have passed as Premier was in a considerable bind if it didn’t get passed. They need more capital and the amount they need simply cannot be raised from the current market capitalisation. So, they need to have a strategic buyer - or at least the potential of one. Because they are - as we’ve unkindly said- in the position of that guy in the gimp suit in Pulp Fiction. As we’ve said here:”Premier African Minerals (LON: PREM) is down 7% on the announcement of the AGM date. Which is a bit of an odd reaction to a perfectly standard announcement but there we are. That AGM is unlikely to really tell us very much about the one and only truly important thing that will affect the company's share price going forward - what is Canmax going to do? Because Canmax has PREM entirely over a barrel. How much of the flesh Canmax intends to take off the back of Premier African is thus the determining factor for the future value of PREM. As we pointed out before about Premier African it is, in one sense and purely technically, bankrupt already.”
This is the grand problem at Premier African: “What PREM is saying there is that as a result of not being able to meet the terms of the offtake contract therefore Canmax can demand that capital payment back. This may or may not make PREM go bust but it would almost certainly mean Zulu no longer belonged to Premier. Which would be bad, obviously.
So, the question becomes will Canmax support PREM? Or will they demand their cash back? That might well depend upon one more detail - what are the terms of the offtake contract? “
We can really only see one of three ways for this to go. Now that the pre-emption rights no longer matter it’s possible to bring in a strategic buyer. Who pays off Canmax and takes the vast majority of the value for themselves. Or, Canmax waits and picks up Zulu out of bankruptcy. Or, the third, Canmax agrees to renegotiate the Zulu contract but near all of the value then flows to Canmax. Given that everyone involved here is a ruthless capitalist we can’t see any other outcomes - which does mean that we fear that current shareholders of Premier African are going to end up with much of that value of Zulu.
